For the third straight year, the captive insurance industry has strengthened its capital base relative to the risks assumed, according to a report from A.M. Best Co. in Oldwick, N.J.
Nonetheless, much needed to be recouped from prior years, when surplus declined significantly while premiums and loss reserves grew substantially, the rating firm found.
Net premiums written grew by 47 percent over the five years through 2005, but only by 5.8 percent in the past year, said Best.
Loss reserves and admitted assets grew by 45.8 percent and 37.4 percent, respectively, over the past five years. The industry maintained the pattern in 2005, with growth rates of 7.8 percent and 6.6 percent for these measures, Best reported.
The firm said that while the aggregate growth in surplus kept pace in the past year with a 9.1 percent increase, the five-year cumulative growth was just 13 percent.
This is an improvement from data reported last year based on the 2000 through 2004 five-year period. If current trends continue, the captive industry will build a stronger surplus base with which to negotiate better reinsurance terms and prepare for an eventual soft market cycle, the report said.
The comparative overall insurance industry gross and net leverage measures remain more aggressive than those of the captive companies. It also is true that captive industry leverage measures have shown some favorable movement, the report said.
The Best composite includes 166 insurers filing statutory financial statements with Best. Of this total, 133 carry a Best's financial strength letter rating. Additional captives rated by Best file financial reports other than statutory statements and therefore are not included in these analyses.
The term "captive" includes single parent and multimember/owner organizations formed to address the insurance needs of specific owners and groups as an alternative to commercial insurance programs.
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